TMI Blog2016 (1) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... been relied upon by the revenue authorities below. There are specific defect in the report. Taking into consideration the findings of the ITAT in assessment year 2000-01, defects in the report and the claim of assessee that in assessment year 2000-01, a miscellaneous application has already been filed. We deem it appropriate to set aside this issue to the file of the Assessing Officer for re-adjudication. - Decided in favour of assessee for statistical purposes. Adjustment on account of provision for bad debts while computing book profits u/s 115JB - Held that:- Assessee was fair enough to conceal that issue is against the assessee as per the explanation 1 to Section 115JB of the Act. - Decided against assessee Adjustment to the value of international transactions of export of guar gum and pet chips - Held that:- Assessee had not gained, the AE had not paid anything and the commodities were sold to the AE at the same price at which those were purchased from the local market, just to retain the Star Export House status. The loss incurred by the assessee was only on account of foreign exchange fluctuation. The structure of the transaction was such for the assessee that it coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition - Held that:- Issue has been decided in favour of the assessee by the Hon’ble Jurisdictional High Court in the preceding assessment years ranging from 1997 to 2001 [2011 (3) TMI 679 - DELHI HIGH COURT ] held as there is no reason to disallow the same as it is clear that the Revenue had accepted to amortize the aforesaid expense over a period of ten years and, therefore, for all these ten years, the expenditure is eligible for deduction under Section 35D of the Act.- Decided in favour of assessee Disallowance of advertisements expenses related to glow signs and neon sign - CIT(A) deleted the addition - Held that:- As decided in assessee's own case for the assessment year 1999-2000 by putting the neon signs and glow signs, no asset of permanent nature is created. Simply because self-life of such neon signs is more, may not be of any significance once we keep in mind the important aspect on which the expenditure is incurred i.e. on advertising and marketing - Decided in favour of assessee - ITA No. 834/Del/2010 - - - Dated:- 22-12-2015 - Sh. N. K. Saini, AM And Smt. Beena Pillai, JM For The Assessee by : Sh. Vishal Kalra, Adv. Sh. Amit Bablani, CA Sh. Yoge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honour to decide this appeal according to law. 4. The grounds raised in the departmental appeal reads as under: 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in directing the assessing officer to allow depreciation without reducing depreciation for the AYs 1995-96 to 1996-97. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the expense did not result in any enduring benefit and the same was allowable expenditure u/s 37(1) of the Income Tax Act, 1961. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 8,02,000/- being 1/10th of preliminary expenses by holding that expenses were covered by provisions of section 35D of the Income Tax Act, 1961. 4. That on the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 10,90,98,495/- by holding that the expenditure on neon sign and glow signs is of revenue nature. 5. The appellant craves to be allowed to add, delete or amend any ground of appeal mentioned above. 5. First ground of the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, then the same is not subject to adjustment made while computing book profit u/s 115JA. To that extent there could be any dispute. Therefore, it has to be held that to the extent the amount which was not debited during the year under consideration to the profit and loss account relating to schedule 10 in the balance sheet of the assessee, the addition cannot be made for computing book profit u/s 115JA. It is the case of the assessee that provision of gratuity of ₹ 68,23,350/- was though debited to the P L account but it was again added while computing the income under the normal provisions. Copy of computation of income has been filed by the assessee at pages 107 to 110 of the paper book. It is observed there from that while computing the income under the normal provisions the amount of ₹ 68,23,350/- being provision made for gratuity u/s 40A(7) is added whereas no such addition has been made while computing the book profit u/s 115JA. It has not been shown that provision for payment of gratuity is calculated on the basis of actuarial valuation. It has also not been shown that provision on account of gratuity is an ascertain liability. Therefore, the addition to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. Assessing Officer shall consider the order of the ITAT in assessment year 2000-01 also. This ground of appeal is partly allowed. 9. So, respectfully following the aforesaid referred to order the issue is restored back to the file of the AO to be adjudicated in the same manner as has been directed vide order dated 31.12.2009 for the assessment year 2001-02. 10. Next issue vide Ground No. 3 relates to the confirmation of adjustment on account of provision for bad debts while computing book profits u/s 115JB of the Act. As regards to this issue the ld. Counsel for the assessee was fair enough to conceal that issue is against the assessee as per the explanation 1 to Section 115JB of the Act. Accordingly, this issue is decided against the assessee. 11. Last issue Ground No. 4 relates to the confirmation of addition amounting to ₹ 12,07,218 made by the TPO on account of adjustment to the value of international transactions of export of guar gum and pet chips. 12. The facts related to this issue in brief are that the assessee during the year under consideration had exported goods falling under two categories namely export of rice, chili paste and peanut but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit margin on sales as the Profit Level Indicator (PLI) and that a set of 10 external comparables had been chosen for benchmarking from public database, the mean margin of those comparables had been computed at 3.51%. The TPO also pointed out that as per the OECD guidelines of Transfer Pricing two or more transactions can be aggregated only when they are closely interlinked or continuous or form one integral whole and cannot be analyzed separately. Otherwise, transactions are ideally to be examined on standalone basis and that as per Transfer Pricing norms the less complex and simpler of the Associated Enterprises (AE) is selected as tested party, moreover, party which does not own intangibles is to be preferred over the party that owns intangibles but in this case it is not known whether PWT owns any intangibles or not. According to the TPO it was not proper to look at the profitability of PWT in respect of those transactions as the assessee had acted as service provider to PWT and not incurred any risks, therefore, the losses of PWT did not justify the loss incurred by the assessee. As regards to the determination of quantum of mark-up, the TPO observed that to locate the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is only ₹ 11 lakhs and this is on account of forex fluctuations; if the value of Indian Rupee had moved in the reverse direction the assessee would have earned a forex gain; and 3. The assessee was benefited by making such exports by getting star trading house status which is linked to the export turnover amounts. 15. The TPO did not find merit in the above objections of the assessee by observing as under: 8.1 None of these arguments justify the assessee s incurring of losses on sale of pet chips and guar gums. PWT may have incurred losses but there is no justification for the assessee to incur losses and for not getting remunerated for the services provided. Since the level of information available with us about PWT is limited, one does not know the exact cost benefit matrix for PWT. The true intent of PWT can never be known in these circumstances, but for our purposes, it appears rather strange that PWT has entered into this transaction knowing fully well that it would incur losses. The exact nature of relationship between PWT and end customers is not known, which could be a significant factor in the chain of transactions. 8.2 Shifting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Losses incurred on providing the service (A) (that portion of the price which was not reimbursed) Rs.1,111,397 Costs incurred in providing the service (B) (Value Added Expenses) Rs.88,290 Arm's Length Price (A+108.53% of B) Rs.1,111,397 +Rs.95,821 = ₹ 1,207,218 The Arm s Length Price in respect of the service provided by the assessee to PWT is therefore taken at ₹ 1,207,218. As this transaction has not been shown in Form 3CEB, notionally the declared value of this international transaction is taken at zero. The entire amount of ₹ 1,207,218, therefore, is to be added to the total income of the assessee. The AO concurred with the view of the TPO and made the addition of ₹ 12,07,218/-. 17. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: The learned Assessing Officer confirmed the addition made by the learned TPO without giving an opportunity to the appellant as required in terms of the Act/instructions of the CBDT. The learned Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO. In view of the foregoing analysis, I am of the considered view that the AO did not commit an error either at the time of making a reference to the TPO or at the time of passing the assessment order concurring with the findings of the TPO. 19. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the AO/TPO were wrong in stating that the losses incurred by the assessee on export of guar gums and pet chips were unjustified and in violation of the arm s length standard and not appreciating the fact that no profit had been shifted out of India. It was further stated that the assessee enjoyed Star Export House status, hence in order to retain the said status it had to export goods out of India of a certain value and since the produce of assessee could not be exported in the required values, the assessee exported commodities which were purchased from independent third party in India and exported to the USA and by doing so, the assessee was able to retain and maintain its Star Export House status. It was stated that these exports were first made by the assessee to PWT, its AE in the US, who in turn further sold them to the ultimate buyers in the US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the assessee in respect of international transactions. The said decision of the ITAT Delhi Bench has been affirmed by the Hon ble Jurisdictional High Court vide order dated 14.03.2013 in ITA Nos. 1828 1829/2010 and 1254/2011 against the said order of the Hon ble High Court. The Special Leave Petition (SLP) of the Revenue had been dismissed by the Hon ble Supreme Court vide order dated 02.01.2014 in CC No. 22166 of 2013. The ITAT Delhi Bench, I-2 , New Delhi in the case of HCL Technologies BPO Services Ltd. Vs ACIT, CC-2, New Delhi (supra) by following the aforesaid decision of the ITAT in the case of DCIT Vs Global Vantedge Pvt. Ltd. has dismissed the appeal of the Revenue. In the present case also the assessee had not gained, the AE had not paid anything and the commodities were sold to the AE at the same price at which those were purchased from the local market, just to retain the Star Export House status. The loss incurred by the assessee was only on account of foreign exchange fluctuation. The structure of the transaction was such for the assessee that it could not make any profit or incur any loss as the transactions were not being undertaken for the sake of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f both the parties and the material available on the record, it is noticed that this issue has been decided by the Hon ble Jurisdictional High court vide aforesaid order dated 09.03.2011. Therefore, in view of the ratio laid down by the Hon ble Jurisdictional High Court in assessee s own case, we do not see any merit in this ground of the departmental appeal. 25. Vide Ground No. 2, the grievance of the department relates to the allowability of the expenditure u/s 37(1) of the Act. 26. The facts related to this issue in brief are that the assessee incurred certain expenditure on the lease hold assets and claimed the same as deductible u/s 37(1) of the Act. The AO considered the said expenditure of ₹ 2,61,000/- as capital in nature but allowed the depreciation @ 10%. When the assessee preferred an appeal to the ld. CIT(A), he directed the AO to allow the expenditure u/s 37(1) of the Act because it did not result in any enduring benefit. The ld. CIT(A) followed the earlier decision of the ITAT in assessee s own case. 27. Now the department is in appeal. During the course of hearing the ld. Counsel for the assessee at the very outset stated that this issue had been allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were wooden structure. Even if, there is no dispute as to whether construction of wall was wooden or brick wall, it is not in dispute that the same was purely temporary erection, and thus, would qualify for 100% depreciation as per Appendix-I. These are pure findings on facts and no interference therein is called for. 30. In view of the above, we do not see any merit in this ground of the departmental appeal. 31. The next issue vide Ground No. 3 relates to the deletion of addition of ₹ 8,02,000/- being 1/10th of preliminary expenses. 32. The facts related to this issue in brief are that during the course of assessment proceedings the AO noticed that the assessee had paid an amount of ₹ 80,19,475/- in the financial years 1993-94 and 1994-95 (i.e. prior to commencement of business) to the Registrar of Companies (ROC Delhi and Haryana) for incorporation and registration of company. The assessee claimed 1/10th of the expenditure i.e. ₹ 8,02,000/- as per the provisions of Section 35D of the Act in 10 assessment years beginning with the assessment year 1995-96. The AO disallowed the said expenditure stating that the payments were made to the ROC for increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had accepted to amortize the aforesaid expense over a period of ten years and, therefore, for all these ten years, the expenditure is eligible for deduction under Section 35D of the Act. No question of law arises. 36. Since this issue has been settled by the Hon ble Jurisdictional High Court, we, therefore, do not see any merit on this issue in the appeal of the department because the year under consideration falls in the period of 10 years for which the amortization of the preliminary expenses has been allowed u/s 35D of the Act. 37. Last issue vide Ground No. 4 relates to the deletion of disallowance of advertisements expenses related to glow signs and neon sign. 38. The facts related to this issue in brief are that during the year under consideration the assessee incurred advertisements and marketing expenses amounting to ₹ 38.83 crores which inter alia included ₹ 10,90,98,495/- on account of glow signs and neon sign etc. The AO disallowed the said expenses incurred on glow signs and neon signs alleging the same to be capital in nature as the same were semi-permanent fixture on numerous retail out lets, which were selling the products of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
